TORONTO, Aug 5 (Reuters) - Canada’s dollar weakened to a five-week low against the U.S. currency on Friday, as solid U.S. job growth failed to offset fears about a possible U.S. downgrade and broad anxiety about the global economy.

Stonger-than-expected U.S. employment data and a mixed Canadian jobs report initially reassured investors that the U.S. economy was not falling back into recession. But sober second thoughts about economic weakness and ongoing speculation that U.S. sovereign debt may be downgraded spooked markets. [ID:nN1E7740O8]

“We’re just having fairly volatile sessions overall across asset classes, same with equities -- it’s been negative, then positive, then negative. There’s a lot of negativity and certainly the Canadian dollar is subject to that,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“There is a lot of speculation about what is ahead and one of the rumors in the marketplace is whether or not the U.S. will suffer a downgrade over the weekend. There is tremendous amount of uncertainty generally,” she added.

The Canadian dollar CAD=D4 fell as low as C$0.9851 to the U.S. dollar, or $1.0151, down from C$0.9742, or $1.0265, earlier in the session.

The midday drop brought the dollar to its weakest level since June 28, well below Thursday’s North American close of C$0.9795 to the U.S. dollar, or $1.0209.

The currency had strengthened after a firm U.S. payrolls report and a mixed Canadian employment report, but the sell-off took hold late in the morning. [ID:nN1E77404O]

World stocks fell for an eighth session despite the better-than-expected U.S. jobs report. Toronto’s main index was down nearly 4 percent at midday, while New York’s Dow Jones Industrial average was off nearly 2 percent as relief over the employment data was short-lived. [.N] [.GSPTSE]

Global stocks plummeted on Thursday in the worst sell-off since the depths of the 2009 U.S. recession, and market-watchers had initially expected a rebound when the employment data came in relatively strongly. But the buying did not last, and commodity-linked currencies like Canada and Australia got caught in the downdraft.

Canada’s unemployment rate fell to 7.2 percent in July, its lowest level since December 2008, from 7.4 percent in June, though this was more due to people dropping out of the labor market than to new employment. [ID:nN1E77404O]

Statistics Canada said the economy managed to eke out 7,100 new jobs, after picking up 28,400 jobs in June.

The increase was less than half that expected in a Reuters survey of analysts but was marked by a healthy switch to full-time and private-sector employment.

Investors also remain cautious about contagion in Europe from the debt crisis, which may now spread to Italy and Spain after Greece.

Short-dated government bonds were mixed at midday. Canada’s two-year bond CA2YT=RR was up 3.5 Canadian cents to yield 0.999 percent, while the 10-year bond CA10YT=RR fell 29 Canadian cents to yield 2.532 percent. (Editing by Jeffrey Hodgson)